Swedish debt office to issue more long bonds when conditions ‘supportive

The Swedish National Debt Office (NDO) will issue more long term bonds when market conditions are supportive, according to a summary of points made by new director general Hans Lindblad when he visited Swedish bank SEB this week.

In its summary report on the meeting, SEB also noted Lindblad’s reluctance to take an active position in currency markets in order to weaken the krona – which has been seen as a safe haven curency ever since the Swiss National Bank pegged CHF to the euro.

Lindblad (pictured) also took a conservative view of the possibility of Swedish municipalities having access to money lent by the NDO, saying it could lead to “moral hazard”.

The full summary is as follows:

“Reflections from a meeting with NDO’S Hans Lindblad.

On Wednesday 20, the National debt office (NDO) visited SEB and presented its revised borrowing forecast and funding plan. Attending the meeting was also the newly appointed Director General for the NDO, Hans Lindblad. Mr Lindblad made a generally favourable impression and seems to be very well informed about issues regarding the management of public debt, which is not surprising considering that he worked as Secretary of State at the Ministry of Finance reporting to Anders Borg during 2006 – 2012. Below we summarize the most interesting points from a Q&A session with Mr Lindblad and other representatives from the NDO.

Krona and active FX position taking

When asked about whether the NDO could consider taking a position for a weaker krona Mr Lindblad said that he was in general very reluctant to speculate with tax payers’ money and that he thought it was appropriate that the NDO’s mandate for taking FX positions had been sharply reduced. This suggests that he will be less apt to take the kind of positions that the NDO has done in the past (in 2009 the NDO took a SEK50bn bet on a stronger krona). Also, he and other NDO staff stated that they did not currently see the krona as overvalued and were not in any way considering selling the krona. In our view Mr Lindblad’s statement indicates that the he may advocate lowering the risks also for other parts of the NDO’s debt management, although he also said that the risk mandate ultimately was a question for the board.

Lending to municipalities

Considering the letter from end-January, where the NDO suggested that the government should consider letting the NDO lend money to municipalities and local governments Hans Lindblad expressed a completely different view. He clearly stated that he thought that this was inappropriate and that it could lead to undesirable incentive and moral hazard problems for the municipalities.

Issuance of long bonds

Regarding for how long the NDO could deviate from the target for issuance of long (>12 year) bonds, the NDO representatives said that the target was long term and that the NDO would increase the debt when market conditions were supportive. Mr Lindblad said that he had suggested that the target should be specifically formulated as “long-term”, when drafting the directives for the NDO at the Ministry of Finance. Our interpretation is that the NDO can deviate from the target for one or even several years if it thinks long rates are too high.”


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